Question

A company limited by guarantee means _________.

• A. shareholders are liable to the extent of guarantee given
• B. unpaid value of shares
• C. unlimited
• D. none of the above

Answer 1

Answer: (A)

shareholders are liable to the extent of guarantee given

Section 2(21) of Companies Act 2013 defines companies limited by guarantee as ‘’a company having the liability of its members limited by the memorandum to such amount as the members may respectively undertake to contribute to the assets of the company in the event of its being wound up.’’ Company limited by guarantee is also termed as Guarantee Company. In a simpler term, it’s a company without any shareholders but it is owned by members called guarantors who agrees to pay a nominal amount in the event of company’s being wound up. It’s a specific form used for non-profit organisation. Under this form, profits earned by the company are re invested again in the company to use it for different purposes.